Payroll Makes the Difference to Profitability

European Chain Hotels Market Review - January 2008

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. October 14, 2008

MARCH 12, 2008. Chain hotels in Paris had the best room sales in January but London took the lead in terms of profit, according to the latest HotStats survey of 10 European cities by TRI Hospitality Consulting.

Paris put in the best sales performance with room RevPAR increasing by 9.4 per cent to Eu147.34. However, to look at room sales alone would give a misleading and partial picture. With Paris spending 40.8 per cent of total sales on labour compared to 28.4 per cent in London, payroll was the critical cost that prevented a Parisian hotel room generating more profit than the same room in London.

London was the most profitable city in the survey with income before fixed charges (IBFC) of Eu82.07 per available room, far ahead of Paris in second place with IBFC of Eu69.46 PAR.

'The best RevPAR performance will not always deliver the best profits. Hoteliers have to keep costs in check to extract the best operating return,' said David Bailey, deputy managing director, TRI Hospitality Consulting.

Warsaw keeps payroll costs low

In absolute terms, Warsaw was the fourth most profitable city in the survey, despite a 20.5 per cent year-onnotyear decline in IBFC PAR. Again, labour costs were a critical factor. Warsaw had the second lowest payroll percentage in the survey at 28.5 per cent of total sales.

Low labour costs helped Warsaw hoteliers convert two thirds of room sales into profit, compared to just one quarter in Vienna, the city with the highest payroll percentage.

'The fixed payroll cost component tends to take up a greater percentage of total revenue at the start of the year when sales are generally at their weakest. But despite a year-on-year drop in revenue Warsaw hoteliers were still capable of controlling wage costs,' said Bailey.

Amsterdam was the third most profitable city in the survey, with an 11.6 per cent increase in IBFC to Eu48.70 per available room, driven entirely by rate.

Demand increases in Prague and Vienna

Only chain hotels in Prague, Vienna and Budapest showed significant growth in demand, albeit from a low base during the same month a year earlier.

In Prague average occupancy rose by 3.5 percentage points year-on-year to reach 58.1 per cent, but a drop in achieved average room rate meant that profit stayed flat.

In Vienna, occupancy increased by 4.9 percentage points also to 58.0 per cent, and a 5.0 per cent rate improvement resulted in the fourth best room sales in the survey. RevPAR increased by 14.6 per cent to Eu82.15.

However, despite the boost to sales Vienna's expensive trading environment hampered its profitability resulting in IBFC of Eu21.74 per available room compared to Eu25.80 in Prague.

Budapest had the highest increase in occupancy of 8.5 percentage points, but still came bottom of the table, underlining the extreme seasonal low hit in January 2007.